Currently, electrical resistance heaters are used to produce most of the hot water in South Africa. Increasing electricity tariffs make these devices very expensive. This study investigates the economic savings potential of using a cogeneration system made of microturbines, heat pumps and heat exchangers. Specifically the heating of water for large residential units is investigated. Different economic parameters are used to compare microturbine heat pump systems with electrical resistance heaters, natural gas boilers and heat pumps. For 27 main centres in South Africa, the amount of hot water is determined where a cogeneration system is economically more viable than other types of water heaters. It has been concluded that the most important influence factor is the electricity tariff. The higher the electricity tariff in a city, the smaller the number of domestic consumers where a cogeneration system becomes viable.